MAC some random thoughts

Green Street sometime back did a research piece showing Leverage doesn’t really increase returns, which is an eye-opener for many, but the important lesson is balance sheet strength. When you are heavily levered, anything that is slightly out of your model can inflict mortal wounds.

Don’t trust management that is unwilling to sell at peak valuations, they are in it for their own gains, not for shareholders. This is a permanent theme at MAC. Even today they are unwilling to sell “core” properties and pay down debt. Rather they will sell “non-core” and generate insignificant amount. Rarely management’s do a reset. The core properties not only have good growth, but also have significantly low cap-rates. Rather than selling shares, it is preferable to sell the assets and pay down debt. But the management will sell shares, because they cannot let go off their trophy properties, just like kids cannot let go off their toys.

Dividend coverage is very important, a very conservative dividend coverage solves lots of management sins. Any REIT with very low dividend coverage is a bug looking for a windshield. It can get lucky so many times, even a cat only has nine lives.

PS: Every time I get tempted I will post to talk myself out of it.


Kingran, Thank You.

Your technical insights as to REIT balance sheets and conflicted management incentives are not invaluable to me, they are quite quantifiably VALUABLE. I miss our now passed on great advisors, but you are a worthy carrier of their legacy.

david fb
(I understand “rocket science”, which is not all that difficult once certain types of straightforward math are comprehended and the complexities of large systems are taken in hand, but REIT legal regulations, accounting and, ahem, “management incentives” are quite beyond me.)